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Balanced Fund

Balanced Fund commentary for the calendar year ended 31 December 2023.
Published 23 Jan 2024   |   8 min read

The Balanced Fund (Wholesale) (the ‘Fund’) rose 10.8% over the 12 months to 31 December 2023, performing approximately in line with its SAA weighted benchmark which returned 10.9%. The Balanced Fund (Retail) rose 10.0%, underperforming the benchmark by 0.9%.

The positive performance was driven by strong performance in global equity markets. Our international equities portfolio delivered 26.6% over the year, outperforming the MSCI World ex AU index benchmark by 3.3%, while our domestic equities portfolio delivered 12.5%, slightly above the S&P/ASX 200 benchmark return of 12.4%. Despite being preceded by one of the steepest rate hiking cycles in recent history, the global economy remained resilient through 2023, with unemployment in major economies remaining stubbornly low. Inflation in the US, Europe and domestically, while still above target, trended down significantly over the period, with headline inflation in Europe falling below 3%. While volatility in bond markets remained elevated over the period, US and Australian 10-year bond yields finished the year roughly in line with where they had started, as markets priced in the end of the hiking cycle, and a series of rate cuts in 2024. In response, global equity markets, as measured by the MSCI World Index, rose 23.8% over the 12-month period, recovering significantly from a decline of -15.6% in calendar year 2022. The positive performance was largely driven by a rebound in the rate sensitive international tech sector, which rose 56%, with major US tech names leading the performance.

Our domestic fixed income portfolio delivered 5.1%, in line with the Bloomberg Ausbond Composite Benchmark, while our global fixed income portfolio returned 5.1% against the Bloomberg Global Aggregate benchmark return of 5.3

Balanced (Wholesale) Fund Performance

As at 31 December 2023~

fund benchmark^
3 months 4.2 5.2
1 year p.a. 10.8 10.9
3 years p.a. 4.5 6.2
5 years p.a. 7.9 7.8
since inception p.a. 7.0 7.1

^ Benchmark: Australian Ethical Balanced Composite. Past performance is not a reliable indicator of future performance.

Inception date: 28/03/2018. 

Balanced (Retail) Fund Performance

As at 31 December 2023~

fund benchmark^
3 months 4.0 5.2
1 year p.a. 10.0 10.9
3 years p.a. 3.7 6.2
5 years p.a. 7.1 7.8
10 years p.a. 6.3 7.3
since inception p.a. 6.6 7.3

^ Benchmark: Australian Ethical Balanced Composite. Past performance is not a reliable indicator of future performance.

Inception date: 16/10/1989. 

Contributors and detractors

Top contributors to Fund return


International Equities – Information Technology


Domestic Equities – Information Technology 


International Equities – Financials

Top detractors from Fund return


Unlisted Property


Domestic Equities – Healthcare


Growth Alternatives

  • Both the absolute and relative performance was driven by our international equities portfolio which returned 26.6%. The rate sensitive Information Technology sector was the most significant driver, returning 51.5% over the period against the benchmark return, recovering from its 25% fall over the prior 12-months. The portfolios overweight position to the sector further supported the portfolios relative outperformance. Apple and Microsoft were the largest contributors to performance, returning 47.8% and 56.8% respectively, while the positive sentiment around AI following the introduction of ChatGPT, saw NVIDIA appreciate 236.9%.

  • Our domestic financial holdings rose 1.5% over the quarter. The higher interest rate environment would tend to be favourable for the sector, in particular lenders, though this has been somewhat offset by strong competition for borrowers, including cash back offers, and higher cost of living putting upwards pressure on arrears. However with lenders starting to end these offers, there are signs that competition is beginning to wane, and the continued resilience of the economy makes the possibility of recession increasingly unlikely. NAB was the largest driver of performance within our Financials holdings, rising 10.2% over the quarter. The stock performance was supported by a positive August update, with cash earnings up 5.8% over the prior corresponding period, and the announcement of a $1.5b share buy-back scheme, noting that net interest margins also declined.

  • Similarly the information technology sector within our domestic equities portfolio was the strongest contributor to both relative and absolute performance, appreciating 28.2% against the benchmark return of 26.6%. The domestic equities portfolios overweight exposure to the sector was the main contributor to its relative performance.
  • Our financial sector holdings in the international equities portfolio were significant contributors to absolute returns, returning 17.7% and comprising 21.9% of the international equities portfolio. While the banking sector fell over the 12-month period, having not made a full recovery from the US banking crisis in March of 2023, transaction and payment processing companies, including Visa (up 25.2%), Mastercard (up 22.4%) and American Express (up 27.33%), drove the sector performance. Insurance companies, which can benefit from a higher rate environment, also drove the sectors positive performance, with our holdings in Great-West Lifeco and Manulife Financial Corporation appreciating 48.9% and 29.2% respectively.


The rate sensitive Information Technology sector was the most significant driver of returns for the fund over the period.

  • Our unlisted property portfolio was the only asset class that delivered negative returns over the period, returning -3.92%, slightly outperforming the MSCI/MERCER Australian Property Fund benchmark return of -4.0%. The unlisted property sector faced a number of challenges through the year. While transaction evidence continued to be scarce, valuers wrote down valuations across most property sectors following steep increases in interest rates and bond yields. Office property has been particularly impacted with occupancy remaining below pre-COVID levels, and lease incentives elevated in the wake of the COVID-19 disruptions to workplaces.

  • Our domestic healthcare holdings was the only sector within the domestic equities portfolio to post negative returns, returning -2.3% over the 12-months. While the Healthcare sector benefited from strong performance from hearing implant provider Cochlear (COH), as well as the portfolio’s underweight position in CSL, the exposure to pathology provider Healius (HLS) negatively impacted the portfolios performance. We continue to like the pathology market, however the decline in testing following the elevated Covid period and slower than expected recovery in testing volumes impacted the company in 2023. Healius brought additional pressure on themselves with a stretched balance sheet requiring an equity raising later in the year, which we declined to participate in and have subsequently exited our position in the stock.

  • Our Growth Alternatives portfolio returned a very slight positive return, lagging the rest of the portfolio. The higher rate environment, and equity market declines in 2022 saw significant declines in new private equity funds and aggregate capital raised, with early-stage capital being particularly affected. In the absence of strong performance, the decline in available capital has created a challenging environment for companies to find funding, particularly at a time when companies are approaching the end of their runways.

Portfolio changes

Additions to the Fund
  • Defensive Alternatives – We have grown our exposure to defensive alternatives, particularly private debt through our investment in Infradebt’s Ethical Infrastructure Fund, that has recently funded two renewable assets.

  • Copper – We initiated a position in copper futures, to benefit from coppers role in the transition in the long term and support returns in environments where broader commodities demand is strong.
Reductions from the Fund
  • Unlisted property – We have continued to reduce our targeted holdings in unlisted real estate to fund the broadening of our illiquids portfolio, particularly within our growth and defensive alternative assets.
Our bias remains positive towards risk assets that are likely to benefit if growth continues to be strong, and leaps forward in AI and technology translate into step changes in productivity without causing inflation.


Our unlisted property portfolio was the only asset class that delivered negative returns over the period.

Outlook for the Fund

This is the third year I have penned the year ahead outlook for the multi-asset funds at Australian Ethical. At beginning of 2022 we viewed the market with caution; rising interest rates were expected to mute returns across asset classes. At the start of 2023 we were encouraged that while risks were still abundant – they were known and thus likely well discounted by the market if they remained contained (an outcome that supported returns in 2023). At the start of 2024, markets greet us with a dichotomy.

Globally, more voters than ever in history will head to the polls in 2024 with election in the US, India, Indonesia and elsewhere. while risks remain abundant, particularly as geopolitical tensions rise – the market ambiguity comes from the seemingly opposing outcomes being priced by financial markets.

Economists generally are calling for a robust 2024, and equity and credit markets seem aligned to this view; but fixed income markets imply a rapid series of rate cuts that will prove hard to justify in the absence of a recession. Unemployment remains at historical lows, but consumer sentiment is consistent with levels seen in deep recessions. This ambiguity in market data obfuscates the outlook over the short term.

Risks to growth such as geopolitical events, potential contagion from ongoing stress in commercial real estate, and volatility in fixed income markets remain very real. Potentially, one of the many live risks manifests itself into a deep recession is and the ensuing response by central banks to cut rates proves Fixed income markets “correct”. This would undoubtedly be a bearish outcome for equities, particularly given large cap global equities are already trading at expensive valuations.

On the other hand, if we imagine a world where both fixed income markets and economists prove correct – an environment where interest rates are falling at the same time economic growth remains robust, an environment that would likely foster an improvement in consumer confidence, it could continue to support strong returns from risk assets.

While a goldilocks outcome seems unlikely, levels of fiscal support that are unprecedented outside of wartime point to it being a possibility and so far global data remains fairly constructive given the backdrop. The real challenge may be achieving this outcome without re-stoking inflation. Indeed, by most measures the US Federal Reserve has only managed to achieve a soft landing once previously in over 60 years.

Our bias remains positive towards risk assets that are likely to benefit if growth continues to be strong, and leaps forward in AI and technology translate into step changes in productivity without causing inflation. Global real rates, while lower at the start of 2024 than the peaks of 2023, remain substantially higher than they have over the past decade. While this is not necessarily helpful for risk assets in the near term, more broadly and over the longer term this improves the probability of meeting our inflation-plus objectives in more constructive environments.

With risks described above in mind, we have sought to add optionality and diversification into our positions where it makes sense and is well priced. Buying too much insurance would inevitably impact returns and so a fall in risk assets is still likely to have significant impact on fund returns – but given our overall view we think this is a risk worth holding.

See Fund info

This is general information only and is not intended to provide you with financial advice or take into account your individual investment objectives, financial situation or needs. You should obtain and consider the relevant Financial Services Guide, Product Disclosure Statement and Target Market Determination relating to this product before making a decision

*Total returns are calculated using the sell (exit) price, net of management fees, transaction costs and performance fees where applicable and are calculated based on distributions being reinvested. The actual returns received by an investor will depend on the timing of the buy and exit prices of individual transactions. Distributions and the performance of your investment in the fund are not guaranteed. Past performance is not a reliable indicator of future performance. Figures showing a period of less than one year have not been adjusted to show an annual total return. Figures for periods of greater than one year are on a per annum compound basis. The current benchmark may not have been the benchmark over all periods shown in the above chart and tables. The calculation of the benchmark performance links the performance of previous benchmarks and the current benchmark over the relevant time periods.

Investing ethically and sustainably means that the investment universe will generally be more limited than non-ethical, non-sustainable portfolios in similar asset classes. This means that the Fund may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the Fund may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.

This commentary may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Australian Ethical accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material.

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